A report yesterday in Reuters seemed to indicate that the U.S. and China have opened the door to tariff negotiations. The article quotes various administration officials saying that tariff rates need to be de-escalated in order for talks to progress.
Clearly, there is a need for this on both sides. If that happens–and the sooner the better–that will be good news for the toy industry. Coupled with the outstanding advocacy of the Toy Association, there may be glimmers of hope on the horizon, though today those are only glimmers.
While what is tariffed and how that’s figured is variable depending on a variety of elements, the concern is that consumers could end up paying more in tariff fees than the value of a product. So, while you can’t just take the retail price of a toy and multiply by 145% to see the exact increase, costs will go up. When costs go up across the board, consumers have less disposable income, and that means that there’s likely less money to buy toys.
From our perspective, what is required today is a complete rethinking of what a trade surplus is. In a globally interdependent manufacturing environment, we should be thinking not about the imbalance of the value of literal goods, but the overall value of goods and services by all participants in the supply chain and how markets use that to their advantage. The concept of a trade imbalance as it’s typically interpreted, then, doesn’t reflect the overall, global economy.
The cost of goods is only one component, and it’s the overall value to a given market where toys are sold benefits that market. A toy that costs $5 to make in China and sells for $25 in the U.S., for example, delivers 80% of that value to the U.S. in terms of funding companies, shipping, trucking, delivery, retailing, and profit, just to name a few. We would argue that when we consider value, the U.S. is still the biggest player in the toy business.
Tariffs in the toy industry were highly effective when there was an established manufacturing infrastructure that needed protection from other countries undercutting domestic production. After both World Wars, tariffs supported the industry effectively. Domestic production today is limited, and it would take a great deal of time and investment to establish it, if it could even be done. That’s why we suggest a more global view that takes into account the entirety of the supply chain. If we’re looking for a way to show U.S. strength, that could be how we do it.
Obviously, everyone is looking for the “win” here. So, let’s hope for the best because it’s essential for our industry. As Jay Foreman said in his recent blog, let’s get the deal done. In the meantime, a continued shout out to the Toy Association as they work to get toys declared as an essential industry and thus not subject to tariffs.
That wouldn’t just be good for our industry; it would be good for kids and families, too.
